Real Estate Information

Wave of Foreclosures Drives Prices Lower, Lures Buyers   Oversupply Triggers Lenders' Fast Sales;   By JAMES R. HAGERTY and KRIS HUDSON March 25, 2008; Page A1   A glut of foreclosed homes of historic proportions is starting to drive down U.S. home prices faster as lenders put more properties on the market and buyers show signs of interest. The ability of America's lenders to manage this fire sale will be crucial to determining how long the housing market stays in the dumps -- and how quickly blighted neighborhoods can heal. The oversupply is severe: In some major markets, including Las Vegas and San Diego, foreclosure-related sales have accounted for more than 40% of all sales in recent months. On Monday, new data suggested that pressures like these are starting to drive prices low enough to attract some buyers back into the market. Sales of previously occupied homes jumped 2.9% in February from the month before, the National Association of Realtors said, the first increase since July. The median price dropped 8.2% from a year earlier to $195,900, the biggest drop recorded by the Realtors in the current slump. In some beaten-down markets, the price cuts have been stark. The Detroit Board of Realtors recently found that home sales in the city (excluding suburbs) in the first two months of this year jumped 48% from a year earlier, to 1,540. The average home price there sank 54% to about $22,000. 'Got to Move Things' Banks and others holding foreclosed property have concluded "we've got to move things" and are finally willing to slash prices, says Thomas Lawler, a housing economist in Leesburg, Va. The supply is piling up fast. Overall, the total number of lender-owned homes doubled last year but sales grew only 4.4%. At the same time, the specialist firms that sell foreclosed homes for lenders say banks are sending them additional properties much faster than they can be sold. "They're coming in [at a rate of] two new properties for every sale," said Claudia Smith, vice president of operations for First American REO Outsourcing, which is handling roughly 8,000 foreclosed homes for lenders. MORE ON THE HOUSING MARKET   • Foreclosure Rate Outpaces Sales by Lenders • Home Resales Up 2.9% in February • Mortgage-Security Rules Could Ease Crisis • Ring Charged With Defrauding Homeowners • Economists React: Housing Reaching Its Bottom? First American CoreLogic, a research firm based in Santa Ana, Calif., that collects data from lenders and county clerks, estimates that foreclosed properties held by lenders accounted for 493,000 of all homes on the market in January, up from 231,000 a year before. Properties like these represent roughly one of nine currently listed for sale nationwide, compared with a one-in-15 ratio a year earlier. "This is both a crisis and an opportunity," says Rafael Cestero, a senior vice president at Enterprise Community Partners, Columbia, Md., a national nonprofit group that invests in housing for low-income people. Clusters of empty, foreclosed homes attract criminals and hurt neighborhoods by undercutting property values for everyone. Brenda Lawrence, mayor of Southfield, Mich., where about 3% of all single-family homes are in foreclosure, calls foreclosed homes "a cancer." But foreclosures also can help bring prices in high-cost areas down to levels that are affordable to teachers, fire fighters and other middle-class buyers who may have been priced out of the market during the housing boom. U.S. Rep. Barney Frank, a Massachusetts Democrat, recently announced plans for legislation to provide $10 billion of federal loans and grants to help local government and nonprofit groups buy and renovate vacant foreclosed homes. The homes would have to be sold or rented to people with low or moderate incomes. The overabundance of foreclosed homes in the market is likely to push down home prices in much of the country for the next several years, says Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm in Cleveland. Off the Sidelines Until recently, all of this distressed property has been encouraging potential buyers to stay on the sidelines in anticipation of lower prices later. But Lawrence Yun, chief economist of the National Association of Realtors, says the latest data show that sales are perking up in some areas where owners of foreclosed homes have become more aggressive about their pricing. Prospects for the housing market also depend heavily on the job market. As measured by the S&P/Case-Shiller national index, home prices jumped 74% in the six years through 2006. During the same period, U.S. median household income rose just 15%. (Neither figure is adjusted for inflation.) That discrepancy made housing unaffordable for many Americans. The home-price index already has come down about 10% from its peak in mid-2006. But prices might need to fall much further, some analysts say. A recent Credit Suisse report projects that average home prices have another 40% to fall in the Miami metropolitan area, 36% in Phoenix, 26% in Los Angeles and 20% in Las Vegas if they are to become more in line with income levels. Lenders face dueling pressures when deciding how quickly to sell foreclosed properties. On the one hand, foreclosed homes tend to depreciate faster than occupied ones because they get less maintenance and quickly look forlorn. And the longer they sit unsold, the longer the lender must keep paying monthly expenses, including insurance and property taxes. On the other hand, lenders must balance the pressure to clear their books with the fact that selling too quickly -- and at deep discounts -- could trigger big write-downs and devastate their quarterly results. "Somebody has to jump on the hand grenade," says Michael Cercone, a real-estate investor in Marblehead, Mass. Lessons of S&L Crisis William Seidman, a TV commentator and former bank regulator, served as chairman of Resolution Trust Corp., an agency created by Congress to sell the assets of failed savings and loans in the aftermath of that late-1980s financial crisis. "Our view was that we should sell [real estate] as quickly as possible," he says. Mr. Seidman advises today's sellers to take a similar approach. In some cases, buyers are ready to act. Marc S. English, a beefy, 6-foot-4-inch Texan in ostrich-skin boots, walked into a private auction of 80 foreclosed homes at an Embassy Suites hotel near Dallas on March 9 and predicted that bargains would be scant due to the attendance of more than 1,000 rival bidders. "If you can't make 20%, 25% off these deals, you're wasting your time," said Mr. English, who occasionally buys and sells homes to supplement his regular work with a commercial builder. Yet Mr. English wound up buying two of the four homes he had scouted in advance. For instance, he agreed to pay mortgage investor Fannie Mae $37,000 for a three-bedroom, two-bathroom home in Fort Worth with a value of $69,600 in the county appraiser's records. After the auction, the lenders initially rejected his winning bids as too low. But a week later, they relented. The fastest way to move foreclosed homes might be to sell in bulk to big investors, although that kind of transaction is highly unusual in the real-estate business. Nevertheless, some hedge-fund operators, including New York-based Paulson & Co., are considering whether to seek deals like these. There are big obstacles, however. One problem: Hedge funds aren't equipped to manage small properties scattered over large areas. Another sticking point is price. Mary Coffin, an executive vice president who heads the loan-servicing business of Wells Fargo, says investors have approached her bank to discuss "fire sale" bulk purchases of homes, at as little as 20% to 30% of what the bank thinks the properties are worth. "We're not there," Ms. Coffin says. She thinks Wells can do better than that by selling homes one by one. Still, she says, Wells needs to prepare for the possibility of doing some bulk sales. Nonprofit groups are angling to get in on the action. Enterprise Community Partners plans to provide financing for local organizations to buy foreclosed homes and renovate them for sale or rent. Enterprise's Mr. Cestero says the group expects to raise at least $50 million to $75 million initially from foundations, financial institutions and other sources for such programs in Cleveland, Dallas, New York, Baltimore and Columbus, Ohio. Mr. Cestero says Enterprise Community Partners potentially could pay 50% to 70% of a property's estimated value. It has held talks with big lenders, although no deals have been reached. The San Diego Reinvestment Task Force, a body set up by the city and county, has proposed to create a "land bank" that would buy foreclosed homes, repair them and make them available for sale or rent in order to prevent blight from engulfing hard-hit neighborhoods. Jim Bliesner, director of the task force, plans to seek funding from foundations and government agencies. In the most dire cases, some lenders have teamed up with community-service groups essentially to donate foreclosed homes for use by low-income residents. In December, Fannie Mae began transferring 182 foreclosed homes, most of them in Detroit, to the Michigan State Housing Development Authority and the Michigan Land Bank Fast Track Authority. The agencies paid $32,000 for the entire group of 182 homes -- enough to cover title-processing charges on each home. Once the titles are cleared, the agencies will donate the properties, which range in value from $5,000 to $70,000, to Michigan municipalities, charities and housing programs. One big problem for sellers is that mortgage lenders have severely tightened their terms, requiring larger down payments and better credit records. As a result, many people interested in buying foreclosed homes can't get loans. Another hurdle is that the lenders responsible for selling the homes don't own all of them. That's because many mortgages are sold to investors in the form of securities; therefore, the investors in those securities actually own the homes. The trust agreements that create securities like these require lenders to show that they are getting the best price possible for the homes. That makes it tough to cut deals with potential buyers seeking huge discounts. Among the big owners of foreclosed properties are government-sponsored mortgage investors Fannie Mae and Freddie Mac, along with the biggest lenders, Countrywide Financial Corp. and Wells Fargo. Fannie Mae owned 33,729 homes at the end of 2007, up 34% from a year earlier. Another big seller is the Department of Housing and Urban Development, or HUD, which operates the Federal Housing Administration. The FHA insures banks and investors against losses on mortgages, and ends up owning foreclosed homes. The average time it takes to sell has grown to 196 days from 175 a year earlier, says Laurie Maggiano, a HUD official. About 30% of HUD's homes are in Ohio and Michigan. In those states, HUD late last year began offering a $2,500 rebate to buyers. HUD also has programs that allow buyers to make down payments of as little as $100. The $1 Home HUD also has programs under which it sells homes at deep discounts, and sometimes for as little as $1, to local nonprofit developers who provide housing for low-income people. Ms. Maggiano says HUD is looking at ways of letting investors bid for large groups of homes. The foreclosure crisis has been a blessing for companies that specialize in selling foreclosed homes, often under contract with lenders. One such firm, FIS Asset Management Solutions of Westminster, Colo., has doubled its staff in the past year to 260 and expects to sell 20,000 foreclosed homes this year, roughly twice last year's figure. From a cubicle at FIS's headquarters, Bernadette Fleming sells, on average, one foreclosed home a day -- houses she never visits in person. She reads reports on their condition and the state of the local market, and confers with local real-estate agents. If a house doesn't sell, she re-evaluates every 30 days to see if price cuts are called for. On March 10, Ms. Fleming weighed a low-ball offer on a three-bedroom, two-bathroom home in Pomona, Calif. The home had gone on the market four months ago for $329,000. Three price cuts later, it was at $269,900. Now, however, a would-be buyer was offering $210,000 plus help with closing costs. In an email, the lender told Ms. Fleming to reject the offer -- but also decided to cut the asking price a bit more. "It's not in the worst shape," Ms. Fleming said of the property. "The landscaping needs attention. But we'll probably reduce the price again and get a contract on it." --Gregory Zuckerman contributed to this article.

Real Estate Market January 2008

In-Depth Analysis January 2008 Market-at-a-Glance The Market-at-a-Glance section contains an overall summary of the trends described in our detailed articles. A recap of the current market indicators are as follows: 1. Resale Listings – 54,513 a. This has been the second month in the past eleven with a decrease in the number of resale listings. The decrease from November to December was 2,237 (3.9%). The trend of this metric shows that listings have been increasing for the past 30 months. The December decrease fits the normal calendar cycle. 2. Resale Sales – 3,412 a. Resale sales volume is down from this month in 2006 by 1,981. b. Resale sales volume is down 3,137 sales from this month in 2005 (the Decmeber 2005 figure was inflated by speculator activity). c. Resale sales volume is down 4,490 from this month in 2004 (the December 2004 figure was very inflated by speculator activity). d. Resale sales volume is down 2,945 from December 2003. e. Resale sales volume is down 2,528 from December 2002. f. Resale sales volume is down 1,054 from December 2001. 3. Resale Sales Price - $229,800 a. The median December sales price is down by $2,700 from November 2007. b. The median sales price has declined $25,200 in the last five months. c. The median sales price is $30,200 below the September 2005 level. d. The appreciation rate for the last twenty-seven months (September 2005 to present) is a negative 8.6% on an annualized basis. 4. New Home Market a. The number of New Home specs in December decreased by 104 from the November count to 3,739. The record level was in October 2006 at 4,692. Prior to February 2006 the record was 2,400 homes. b. The number of new home subdivisions selling dipped for the second time in the last six months - down by 11 to 1,102 (the largest number ever recorded prior to 2006 was 813 in May 2003). The spec inventory remains far above norm. That level is currently about double the level that has historically been healthy for our market. What will it take to get the inventory level back into a normal range for our market? Sales have now been below the 2002 level for seven months. I believe that a major portion of the drop in sales from the 2002 level can be attributed to three factors: 1. Potential buyers waiting to be able to sell their homes 2. Buyers concern about the magnitude and timing of the market price correction 3. Tightening in mortgage qualification criteria. This is not true of the drop from 2004 - 2006 which can be almost totally attributed to drastically reduced speculator buying.

Markets Adjust Nationally

The National Association of REALTORS® (NAR) reported in late September that existing homes sales fell in August, caused in large part by recent adjustments within the mortgage industry. The overall national market for existing homes slowed 4.3 percent in August. NAR still anticipates close to 5.5 million units to be sold in 2007, which is 12.8 percent below last year's pace for existing home sales.

On September 28th, the Wall Street Journal reported that the thirty year conventional, fixed rate mortgage was averaging 6.42 percent, which is up from 6.34 percent earlier in the month. Still, NAR president Pat Combs explains that today's mortgage picture is getting better. "Mortgage interest rates have been declining and loan availability is improving,” she said. “Movements to enhance the FHA loan program and to raise the limits for conventional financing could provide additional relief, and it looks like the worse of the mortgage availability problem is behind us. The abundant choice of homes is permitting buyers to better negotiate price and terms. There are good opportunities in the market now, especially for first-time buyers.”

The national median home price for all types of housing was up .02 percent from this time a year ago, to $224,500. The median is the typical market price where half of the homes sell for more and half sell for less.  "Price gains in the Northeast and Midwest were largely offset by a decline in the West, while medial existing home price in the South was down slightly, demonstrating that all real estate is local," Combs said.
 
 
Advice for Home Sellers!

Competition for qualified buyers is greater than it has been in years past, but there are still buyers out there who are willing, able, and interested in purchasing your home! If you are realistic about what it takes to sell in a buyers market — and you are willing to meet the buyer in today's market — then success can be yours! Here are a few tips to make your home stand out from the crowd:

Pricing - Price your home realistically.  Remember, buyers are comparing your home against all others and are looking to stretch their dollar. By pricing your home to sell, you end up saving time and money in the long run by keeping your home from being shop-worn and overlooked.

Home Inspection - How does your home stack-up against new construction?  Pre-existing homes often require more effort to maintain.  By ordering a home inspection and fixing any known defects, buyers can be confident in what they're buying.

Incentives - Buyers love incentives. With larger housing inventories, incentives can be the deciding factor between your home and the competition.  Consider offering a free home warranty, a carpet allowance, or assistance with closing costs.  Incentives don't have to cost a lot to be attractive.

By offering value, you attract buyers and enhance your property's desirability.  If you are thinking of selling your home, please contact us for a current market analysis and marketing consultation.  There is no obligation for these services.

http://www.brookings.edu/papers/2007/10_mortgage_industry_downs.aspx

The Great Capital Inflow into Real Estate

Throughout the 1990s, the investment community had largely considered real estate undesirable because of its falling rents, occupancy rates, and prices; so investors shifted most of their attention and funds to stocks and bonds. This helped launch a record price rise in world stock markets. Soaring stock prices drew money away from real estate into stocks until the Internet stock bubble burst early in the new century.

Overnight, real estate morphed from a pariah among investors to the major viable and easily accessible way to invest funds, since stock markets were plummeting in value. The NASDAQ composite index fell over 70 percent in value from its 2000 peak in two years, and the other major indices also declined sharply. But real estate investment trust (REIT) stock prices started a steady climb as money flowed into both residential and commercial property markets.

This money came mainly from a global over-supply of savings from rapidly developing nations like China and India, from newly independent Eastern European nations just returning to market economies after almost a half-century of Soviet domination, from soaring profits in oil-producing states like Russia, Saudi Arabia, Venezuela, and Iran, from zooming corporate profits in the U.S. economy, from investors borrowing money at almost zero interest in Japan and investing it elsewhere at higher rates and from a variety of other sources. A fundamental paradigm shift took place in the attitude of world financial institutions and investors toward the relative desirability of real estate – especially commercial properties – as compared to other asset classes.

The Impacts of Securitizing Real Estate Finance

The expansion of a financial technique known as securitization helped to encourage the change in attitude toward real estate. Formerly, mortgage lenders often held onto the entire mortgage until it was repaid. But under securitization, lenders put many such mortgages into a single pool, dividing the interests into several different “tranches.” With differing yields and access to mortgage repayment flows, tranches offered differing degrees of risk. Mortgage repackagers could sell off tranche pieces to other investors, spreading the risks of any one mortgage among many lenders. This technique reduced the risks and allowed for the expansion of world capital available to real estate. The globalization of capital markets also aided the flow.

Securitization also generated more private mortgage lenders and packagers who were not covered by extensive federal regulations. Residential mortgage-backed securities issues by private labels rather than federally regulated agencies accounted for $135 billion, or 21 percent, of all such securities issued in the first quarter of 2003, but rose to about $320 billion, or 56 percent of the total issued, in the fourth quarter of 2005. Private label issuers were more likely to engage in reckless subprime lending with extremely easy credit terms for subprime borrowers. So their expanded responsibility for residential mortgage lending increased the risks of such lending through 2005.

Securitization of real estate debt also created great uncertainty about who would be responsible for absorbing losses or working out repayment problems if borrowers were unable to pay on time. The actual sources of capital for any one loan were so scattered among multiple lenders, each with a relatively small piece of each total loan, that no one was certain who would bear the costs for defaults or delinquencies. The massive amount of securitized debt outstanding had never been subjected to a large-scale repayment crisis; so past experience was not much of a guide.

Effects of the Massive Capital Flow into Real Estate Markets

As capital poured into real estate, especially after 2000, it generated a worldwide upward movement in real property prices. This was most evident in housing prices, not only in the United States, but throughout the developed world – except in Japan and Germany. According to Freddie Mac’s home price index for 381 U.S. metropolitan areas, based on repeat sales of the same properties, housing prices had risen 46.5 percent in all of the 1990s, but they then rose almost another 59.8 percent in just the first six years of the new century.

This worldwide inflow of financial capital into real estate was a crucial factor influencing U.S. housing prices and the general boom in housing production after 2000. As the value of housing soared, U.S. homeowners realized they had more equity in their homes; so many borrowed against that equity or refinanced their homes at falling interest rates and used some of the acquired funds to stimulate their general consumption. That helped keep the entire U.S. economy booming. It also led to bigger U.S. trade deficits with the rest of the world as we imported more than we exported, and paid for that deficit by issuing Treasury securities and other I.O.U.s to foreign investors and governments.

Much of that gigantic pool of capital from around the world is still out there looking for something in which to invest, and investors are still willing to consider real estate – including American real estate. The outcries of Wall Street that there is a capital crisis are exaggerated – there is only a shortage of confidence in some of the instruments that Wall Street has invented to capture some of that capital. Though the resulting uncertainty has spread to banks and other financial institutions, plenty of capital is still out there and looking for a home.

The Current Overall U.S. Housing Market Situation

In both 2004 and 2005, the U.S. housing industry built 2 million new housing units, including mobile or manufactured homes. Yet most demographers believe our economy actually needs only about 1.3 million new housing units to supply shelter to all new households formed each year, plus 200,000 to 400,000 new units to replace obsolete older ones. This means the homebuilding industry was reaching into future demand to support its high levels of new housing production in 2004 and 2005. Four previous high-level bursts of new housing production have been followed by two-to-five year production declines averaging 37.5 percent. Housing starts have already fallen below 2005 levels by 13 percent in 2006 and 29 percent so far in 2007. So the housing industry’s production decline is not over yet, and will continue through 2008.

Sales of existing homes have also decreased in number from a peak rate of 7.2 million per year in September 2005 to 5.5 million per year in August 2007, a drop of 23.6 percent. However, that does not mean housing prices as a whole will collapse, even though such prices have risen dramatically in the past decade. According to Freddie Mac’s home price index, housing prices in 381 U.S. metropolitan areas rose an average of 46.5 percent in 10 years from the first quarter of 1990 to the first quarter of 2000, then soared an average of 59.8 percent in the six years from the first quarter of 2000 to the first quarter of 2006. From early 2006 to the second quarter of 2007, home prices continued to rise in 314 of those metropolitan areas, or 82 percent, by an average increase of 7.3 percent. In the other 41 metropolitan areas, prices dropped by an average of 3.4 percent. The areas with continued price increases included 24 of the 29 largest metropolitan areas in terms of population.

As of September 2007, National Association of Realtor data show that the median price of existing homes sold was down only 4.2 percent nationally vs. one year earlier, though down 8.8 percent in the west. These data show that prices of existing homes are not collapsing, despite large decreases in both new home production and sales of existing homes.

Why is that happening? Most American home owners do not have to move. So when prices start to fall below what they think their homes are “really worth,” they will simply withdraw those homes from the market and wait for prices to improve. This puts a floor under the prices of most single-family homes. Where overbuilding has been spectacular and many buyers were speculating on flipping the units they bought rather than occupying those units, a price collapse could occur. That is most likely in condominium markets in big cities like Miami and Las Vegas, but probably will not spread to typical single-family homeowner units in most U.S. metropolitan areas.

The Subprime Mortgage Situation

The subprime mortgage market has recently generated the most concern that credit markets may completely seize up and paralyze the economy. In fact, subprime mortgages form a relatively small part of all mortgage originations. They are mortgages made to households with poor credit records at interest rates 3 to 4 percent above normal prime mortgages. Lenders liked them because they had higher interest rates than prime mortgage rates, which had fallen very low in the early 2000s. Borrowers with poor credit liked them because they enabled such households to buy homes when they otherwise could not do so.

But when prices stopped rising and began to decline, as they did in many markets after 2005, subprime default rates began to rise. Since many mortgage-backed-bonds had been based on subprime loans, the conduits floating those bonds had a hard time making their payments to the persons or institutions investing in such bonds. Surprisingly, those persons and institutions included many in Europe and even in Asia who had been attracted by high-interest rates and the prospects of continuing increases in housing prices. Moreover, the conduits creating such bonds were largely unregulated, private firms, unlike Freddie Mac and Fannie Mae, and took many risks by making loans with no down payments, monthly payments of interest only and even no checking of borrowers’ incomes.

Yet among all U.S. residential mortgage originations, subprime loans altogether comprised a cumulative total of under 13 percent from 1994 through 2005, though they rose to 19 percent in the year 2004 and 21 percent in 2005, according to the Mortgage Bankers’ Association (MBA). This means at least 87 percent of residential mortgages as of mid-2007 were not subprime loans, according to the MBA’s delinquency studies.

The serious delinquency rate among subprime mortgage loans remained below 8 percent from 1998 through the third quarter of 2000. Then it rose to between 10 and 13 percent through the second quarter of 2003, and has declined to below 8 percent since the fourth quarter of 2003. Thus, at least 87 percent of subprime home loans had not defaulted as of 2005. True, this is much higher than the serious delinquency rate among prime mortgages, which has remained below 2 percent from 1998 through 2005. Subprime delinquency rates may rise somewhat more in 2008 because monthly payments on many such mortgages will be re-set to higher levels when interest–only periods end or adjustable rates are driven upward. But even then, the vast majority of subprime mortgages are likely to remain fully paid up as long as unemployment remains as low as it is now in the U.S. economy.

The Broader Repercussions of Subprime Mortgage Problems

These facts hardly indicate a credit crisis throughout the economy or even in mortgage markets. But the subprime mortgage problems do glaringly reveal the inadequate mortgage and other credit underwriting standards in practice during several recent years of high-volume, low-interest lending. Subprime mortgage problems make many real estate lenders realize they should have been conducting more thorough underwriting, demanding higher-interest rates and putting more loan covenants into their deals.

Lenders have woken up to the fact that their actual risks were much greater than they had recognized. In response, many recently stopped making any loans until they could better assess the real risks involved. Other lenders raised rates and increased loan covenants. The resulting shock threatened to upset lending activity throughout global credit markets. This fear was encouraged because many complex securitized loan funds contained small portions of delinquent subprime mortgages. If this seizing-up of credit markets became worldwide, that would slow down economic growth everywhere – hardly a desirable outcome.

In response, the Federal Reserve Bank, the European Central Bank, and the Bank of England all cut their discount rates (the rates at which they lend money to banks) and pumped more liquidity into credit markets. Then the Federal Reserve Bank further cut the fed funds rate (at which banks can lend reserves to each other) and the discount rate by 50 basis points each – a dramatic change in past policy. This has seemed to reassure credit markets somewhat, although interest rates and credit terms are almost certain to remain higher than before the subprime mortgage mess – as they should. How long it will take credit markets to recover fully is not yet clear. But investors still have a tremendous amount of financial capital that they must put to work somewhere – there is no basic shortage of money.

The Booming World Economy

The world’s generally favorable economic conditions suggest continued prosperity rather than a collapse of market economies. Western Europe, Eastern Europe, Asia’s developing nations, and Japan are all prospering and growing economically faster than they have been in the past decade. The U.S. economy has slowed down somewhat, but our gross domestic product is still growing and our unemployment rate is very low compared to historic norms. There are large supplies of capital being generated around the world looking for places to invest. Although growth rates in developing nations are faster than the U.S. growth rate, our economy is still regarded as the safest and most politically secure place to invest in the world, despite the devaluing U.S. dollar. This is shown by the recent decline in U.S. Treasury interest rates as lenders fled into Treasuries seeking guaranteed security. These are not the conditions likely to generate a financial crisis.

As noted above, the world’s major central banks have taken steps to pump more liquidity into financial markets to forestall any fears among investors of a credit crisis. The Fed has put billions of additional dollars into U.S. banks, and those banks must lend that money to someone to make it work for them. These actions are designed to offset the feelings of panic generated by the Wall Street purveyors of gloom and doom. Some aid to their borrowers might be justified, but bailing out the lenders even more than we have up to now would create a moral hazard of merely encouraging them to do it again when the next chance appeared.

Is Real Estate’s Boom Sustainable?

Nothing in this world lasts forever, and the recent unprecedented prosperity in housing and real estate markets is no exception. Activity in U.S. residential markets has already slowed down, and that slow-down will probably continue for the next year or so, though it may recover after that. But in commercial real property markets, though interest rates are appropriately rising somewhat, there is still considerable capital looking for someplace to go. Thanks to the paradigm shift among world investors about the basic desirability of real property as an investment asset class, much of the money that has moved into real property will stay there.

Yet the impacts of the tremendous inflow of capital into existing real estate have in some respects undermined its continued attractions as an investment. As competition among investors drove prices of existing properties up and their yields down, more investors have begun to consider building new properties rather than buying existing ones. They think they could get higher initial yields from new and “greener” or more high-tech properties than from older, more obsolete existing ones, since the older ones had become so expensive and have such low yields. This change in views could start another new development boom like those that have ended so many real estate cycles in the past. That is especially likely to happen if the oversupply of capital keeps borrowing very cheap and interest rates do not rise much. Eventually, such a new development boom would overbuild world property markets and make it less desirable to keep putting more money into them. But that would take several years of booming new development.

So real estate’s boom cannot last forever – nothing does – but it could last a lot longer than it has lasted up to now. There is still plenty of financial capital out there looking for somewhere to go, and there are still plenty of property markets around the world that present good development opportunities. In the absence of some catastrophic world crisis that would upset all forecasts, there is no reason to think we are in the midst of an inevitable credit crisis. Just look at the facts.

www.azcentral.com/arizonarepublic/business/articles/1007biz-catherine1007.html

 

Resales across metropolitan Phoenix were down again in August, but new-home sales held steady.

It could be a sign that the thousands of speculatively built homes across the Valley are selling while buildersResales across metropolitan Phoenix were down again in August, but new-home sales held steady.

It could be a sign that the thousands of speculatively built homes across the Valley are selling while builders are pulling back on putting up more new ones. Both moves will help the resale market because fewer listings mean less supply.

The Phoenix Housing Market Letter tracked 3,110 new-home closings in August. It was the fifth straight month the figure didn't lose any ground. advertisement 
 
 

New-home prices have dropped since last year, which also is helping sales. The typical new Valley home price shot up to $285,000 during the frenzy of 2005, but this year slipped back to the $255,000 range.

But the report's publisher, housing analyst RL Brown, said based on home-price increases during normal years like 2002 and 2003, the median price of a new home likely should be even lower, in the $220,000 range now.

Another good sign for metro Phoenix's housing market is that listings seem to be flattening.

According to the weekly tally of David Blank of the Freedom Team at National Realty Brokers, the number of homes for sale in the Valley stabilized at just under 57,000. Part of that was due to the expiration of some listings at the end of the month, so next week will be telling.

The uptick in new-home closings and leveling off of listings hasn't helped the Valley's resale market yet. Early counts by real-estate agents show existing-home sales fell again last month.

And Brown is still giving the housing market a "code red" rating, but he can see it turning the corner in early 2008.

New housing chief

Sheila Harris is leaving the Arizona Department of Housing. The well-known housing advocate has been director of the agency since its inception five years ago.

She is firming up her future career plans, which likely will include some affordable-housing development in the private sector. Her contract is almost up, and Harris decided with her youngest child going to college, it was a good time to make a change.

The department's incoming director is no novice to the state's housing issues. Gov. Janet Napolitano has named Fred Karnas Jr. to the position.

Karnas, who recently joined the housing agency as administrator of its new Center for Housing Affordability and Livable Communities, began his career working for the Phoenix task force on homelessness. He then went on to become the first executive director of the Community Housing Partnership, a non-profit housing corporation.

In 1995, he joined the U.S. Department of Housing and Urban Affairs and worked on projects across the country.

Condo craze reverts

Metro Phoenix now leads the country for condo "reversions."

Developers jumped on the condo-conversion craze in the Valley a few years ago, snatching up apartment complexes to turn them into for-sale condos.

But the demand for those condos slowed with the rest of the housing market. Now, more than 2,946 condos are being turned back into apartments in the Phoenix area, according to Real Capital Analytics.

Baltimore is second in the country for condo reversions, with 1,433 units going back to the rental market. Orlando is third, with 1,233 units.

The figures were published in the new PriceWaterhouseCoopers Korpacz Real Estate Investor Survey.

Not all condo conversions in the Valley have failed, however, and some developers are trying valiantly to sell the projects. People with big signs, and often wearing eye-catching costumes, still can be seen promoting condo-conversion projects on many Valley  are pulling back on putting up more new ones. Both moves will help the resale market because fewer listings mean less supply.

 Ed Masley
The Arizona Republic
Oct. 10, 2007 07:41 AM
The needs of an upscale and evolving downtown culture is the primary emphasis of the Metro Design Expo this weekend at the Phoenix Convention Center.

So, don't expect your typical home show, said Johnathan Tom, spokesman for home show producer Alaska Events.

"We're trying to pull in a lot of the higher-end products. You go to the normal home and garden shows, you see, you know, the spas and lawn chairs. With this one, we're trying to go for a higher-end spa. We have a lot of companies doing custom metalwork for those amazing iron doors that you see on some of those grand estates. It's just a higher quality, higher-dollar home and garden product."

    


Making it even less typical, a representative from Trading Spaces will be doing open casting calls at the Expo throughout the weekend.

The event, Friday through Sunday, is targeting a demographic Tom sums up as "people in that 25-35 hot market range" who live in "the historic districts, the new high-rise condos and lofts and just the grand estates that are popping up everywhere. We really wanted to kind of give something to that type of a homeowner, really focus in on that metropolitan, urban, hip kind of lifestyle."

But do 20-something urban hipsters really have that kind of extra money to invest in upscale spas or is it going straight into their mortgage and/or bar tab at their favorite hipster nightclub?

Well, Tom said, some items will more affordable than others.

"We just kind of dipped into all of the home and garden companies we have and threw out the concept of modern design, just asking them to kind of come up with newer, fresher products, not your average products," Tom said. However, a lot of companies are going to offer products with a lower dollar value, he said.

One big area of focus, naturally, will be interior design.

"I invited a bunch of different local interior designers as well as companies like Costco Home and Ikea to come and really represent a hipper interior," he said. "Two companies will be on hand that have agreed to toss around some ideas with any of our attendees and try to develop a design concept for each individual person who's interested."

Another side of downtown living that would tend to represent a different challenge than buying in one of the outlying areas is the limited space that comes attached to that historic district address.

"At our other events," Tom said, "we might have anywhere from a 40 by 40 (foot) space to a 25 by 50 space that we give our landscapers to make their amazing creations but for this, I kind of scaled it back a little bit. I'm doing 15 by 15 spaces and I asked the landscape architects to kind of be creative as best they can in small spaces and they came back with some truly amazing ideas. I have one guy that's actually doing a rooftop landscape with a pond."

By next year, Toms predicts that Alaska Events will have more than likely added an antique mart aimed at those who like to run with that whole preservation vibe.

"It's really going to be an ever-evolving show," Tom said, "because metro design is always changing so we want to always try to keep up with what's hot."

Metro Design Expo
Where: Phoenix Convention Center, 111 N. Third St.

When: 10 a.m.-7 p.m. Friday and Saturday, 10 a.m.-5 p.m. Sunday.

Admission: $9, $2 for ages 3-12. Free for ages 2 and younger.

From: www.americanchronicle.com/articles/viewArticle.asp
by Kinan Beck

The sad reality is that there are always people out there that are looking for people they can take advantage of. In most cases, scammers will take advantage of those that are already down because those that are already on hard times tend to be more desperate. Since desperation often leads to gullibility, scammers are more than happy to prey upon them in order to make a quick buck.

Whether you are in a desperate situation or not, you are always at risk of being taken advantage of by a scammer if you do not remain continually alert. Therefore, it is best to follow these simply tips to avoid being scammed when investing in real estate.

1. Never send money to an “interested buyer.” One of the most common real estate scams is selling to a person in another country. With this scam, the scammer claims to live in another country and says he would like to buy your real estate. There is only one problem: he needs you to send some money his way to pay for travel expenses or some other expense that is standing in his way. Once you send the money to the scammer, he seemingly drops off of the face of the earth.

Remember, you should only be receiving money when you sell your real estate.

2. Never turn over mortgage documents to an “interested buyer.” Identity thieves will sometimes pose as an interested buyer and will then request to see mortgage documents. Since these documents often contain personal information such as your social security number, you are essentially handing over your identity when you hand over the papers.

Remember, you should never hand over your personal real estate documents to anyone other than a lawyer.

3. Never continue negotiations with someone that has never seen your real estate. Some scam artists will claim to be interested in purchasing your real estate without ever having seen it. This is simply a ploy to win over your trust so you can be taken advantage of later.

Remember, no honest person is going to invest a large amount of money into real estate without having seen it first.

4. Never complete a deal without the help of professionals. Even if you are dealing with a person on a face-to-face basis, you can still be taken advantage of if you are not careful. Therefore, be sure to enlist in the help of a number of different professionals when investing in real estate. Before you sign any contracts, run them past an experience real estate attorney. Enrolling in a real estate club will also put you in contact with a number of legitimate professionals that can help steer you in the right direction.

Remember, if it sounds too good to be true, it probably is. Use the help of professionals in the real estate field to make sure you are not being taken advantage of.

5. Never put your trust in a handshake. Unfortunately, a person’s word and handshake is not enough to keep you out of trouble in the world of real estate investment. Make sure to get everything that you agree upon in writing and don’t assume the other person will make good on anything that was agreed upon verbally.

There are plenty of ethical people working within the real estate investment field that will buy and sell real estate honestly and professionally. At the same time, there are some people that are just waiting to take advantage of another person’s misfortune. Be cautions and follow these few simple tips and you will not find yourself falling victim to a scam."

Kinan Beck is the Broker and co-owner of One Source Realty in Austin Texas. Visit Kinan’s Lakeway Real Estate Guide, visit his Steiner Ranch real estate company’s website, & his Avery Ranch real estate website. He has seen considerable success in real estate, and looks forward to many more years in the business.